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Lessons From Public Sector Contracting

November 4, 2009

At today’s IACCM member meeting in London, more than 100 delegates heard from IACCM Chairman Tim Cowen about current initiatives on public sector contracting.

Since leaving his role as General Counsel at BT Global Services, Tim has been leading a multi-company effort to address some of the challenges in EU and UK government contracting practices. He explained how past work had demonstrated that government was often ‘shooting itself in the foot’ when it procured major IT or outsourcing services. With the emergence of Cloud computing, there is an opportunity to re-think and learn from past mistakes – or to make them all over again.

Tim described the enormous benefits that could flow from Cloud, with the opportunity to replace or sell heritage equipment and facilities. Estimates of the achievable savings to the public purse vary enormously, but conservative views suggest a minimum of £44bn. over 10 years for UK central government alone.

But many past acquisitions by government have not been successful. In some cases, they have simply failed to deliver any tangible benefits; in others, they tend to overshoot on cost and / or delivery schedules. Research has shown that much of the problem is driven by risk averse attitides and terms, which attempt to place the burden on the supplier. This approach destroys trust and inhibits openness and cooperation.

The work of the Open Computing Alliance (OCA) is promoting focus on governance through contracts. It proposes that both sides must have incentives to perform, including the allocation of appropriate resources and skills to ensure on-going project and relationship management. Tim highlighted how – despite years of evidence to show the negative impact of risk transfer – these tendencies still prevail. He highlighted the recent inclusion of ‘time of the essence’ clauses in many high-risk projects. Such terms enable arbitrary action by the buyer and discourage open discussion or mutual attention to risk.

Tim also expressed the need for greater integration and consistency across government departments. For example, benefits would flow from a consistent financial system that used common accounting standards.

The key lesson from studying years of public sector contracting for complex technology and outsourced services is that contracts which impose burdens on the supplier that do not reflect the intent or structure of the relationship will cause problems.  Relationships matter. They must be supported and managed through appropriate terms and conditions that set out balanced and complementary responsibilities for performance.

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